What the Debt Deal Means for the Dollar

The debt deal's all well and good, but the dollar is still on track to weaken, this strategist says.

News of a debt-ceiling deal sent the dollar higher almost immediately. But just hours later, it was falling back to earth. Rightly so, says Timothy Riddell, Head of FX Research & Head of Technical Analysis at ANZ.

"The initial response is relief and likely clawback of some dollar shorts. But the medium term growth profile for the U.S. has been materially damaged. The level of confidence in the U.S. has been materially damaged. The world's largest economy has an administration which is struggling to get something that shouldn't have been an issue through. It's going to keep a lot of downward pressure on the dollar."

Riddell recommends selling the dollar against currencies of countries with better fiscal conditions and with interest rates on the rise — in short, Asia and the Australasian markets.

"India , which is battling its inflation problems but also has a relatively closed economy" and is less impacted by a U.S. slowdown, is one he likes. Indonesia , another relatively closed economy with plenty of commodity assets, is another.

Among more liquid currencies in the region, Riddell says he now thinks it's more likely that the Australian central bank will raise interest rates at its Tuesday meeting, and he thinks the Aussie dollar could eventually rise to $1.12 — but that may be underperforming other currencies in the region. The kiwi , for one, could outperform, Riddell says.

You can watch the whole discussion right here.

Focusing on the Currencies

Timothy Riddell, Head of FX Research & Head of Technical Analysis at ANZ talks about the forex markets.